Thursday 26/08/21

  1. In MACRO, CRYPTO & INFRASTRUCTURE NEWS, South Korea raises interest rates, German business confidence continues to waver, UK services confidence wobbles, the FCA gives up on Binance, HS2 gets scaled back and Wales ponders mini-nuke power
  2. In SUPPLY CHAIN NEWS, a mega-port reopens, UK companies plead for government action, UK farmers want help and car production hits new lows
  3. In CORONATRENDS NEWS, Salesforce sales jump and Grafton continues to surf the DIY wave
  4. In INDIVIDUAL COMPANY NEWS, Klarna has big losses, OnlyFans does a U-turn and Delta Air Lines is strict on vaccination
  5. AND FINALLY, I bring you Sprite ramen and a rollercoaster that breaks your bones…



So Germany’s Greens eye the election, UK has a pingdemic pullback, the LSE considers rule changes and the delivery driver shortage continues…

📢 It’s Thursday – so it’s time for my 30-minute Instagram Live At Five where I will run through the week’s key stories AND the one hour weekly ZOOM call for paying subscribers where I will do the same but in more detail and with much more interaction 👍 The ZOOM call will start at 5.30pm and run until 6.30pm. See you there!

In a world where low interest rates are king, South Korea becomes first big Asian economy to raise interest rates (Financial Times, Edward White and Song Jung-a) highlights the country’s decision to raise its interest rate from 0.5% to 0.75% – its first hike since September 2018 – in a bid to rein in record household debt and red-hot property prices. House prices have risen by 14.3% between July last year and this year – the steepest rise since 2002 – and household debt increased by 10.3% in Q2 versus the previous year. There is speculation that this could prompt other Asian economies to raise their rates – although this is by no means certain.

There also seems to be a crisis of confidence in some countries, as per German business confidence falls as concerns mount (Financial Times, Valentina Romei), which highlights the latest closely-watched Ifo survey that reflects a major drop in business expectations in August in Europe’s biggest economy and Strong growth but little confidence in services sector (The Times, Gurpreet Narwan) which also highlights business confidence wobbles in the UK via the latest CBI survey – and they are both due to concerns about the ongoing impact of supply shortages and rising costs.

Meanwhile, UK’s FCA says it is ‘not capable’ of supervising crypto exchange Binance (Financial Times, Adam Samson, Philip Stafford and Eva Szalay) shows that our financial regulator just can’t supervise one of the world’s biggest crypto exchanges because Binance has failed to respond to even basic queries. * SO WHAT? * This just goes to show what the world’s regulators are up against as consumers continue to buy unregulated products via crypto businesses that manage to swerve bans by giving users access to facilities based overseas. FCA/Binance: flunked and incapable (Financial Times, Lex) says that regulating a

business that trades up to $38bn a day across 316 assets is tricky when it fails to answer questions about how it is organised, how Brits use its products or who actually runs the website! While regulators around the world ponder how best to approach this issue, Binance continues to benefit. The value of Binance Coin, for instance, has shot up by an impressive 2,000% over the last year! If they don’t get their act together there is a risk that more fintechs will find more ways of avoiding regulation, which is not good if they fail because there will be no protection.

Meanwhile, in infrastructure developments, UK ministers set to cut back HS2 eastern route (Financial Times, George Parker and Andy Bounds) shows that ministers are starting to tire of the spiralling costs of Britain’s most expensive infrastructure project and are talking about plans to make major cutbacks, with the eastern leg between Birmingham and Leeds looking increasingly likely to get cut or postponed. * SO WHAT? * Things have changed rather a lot in the ten years since this all started and I think that the sudden emergence of working from home under lockdown has, at least to some extent, negated the need for this physical link between north and south. When you add into that the massive hike in costs over the years, I think that this seems to make strategic sense if nothing else as the government will be trying to trim any extraneous expenses after last year’s massive debt-fest. Critics of cutting back will say that this will dent the government’s credibility in “levelling up” all parts of the country, but I guess you can’t please everyone.

I thought that Wales advances its plans for small nuclear plants (Financial Times, Nathalie Thomas) was pretty interesting given recent developments for Rolls-Royce to make Small Modular Reactors (SMRs) and it seems that the Welsh government wants to resurrect Trawsfynydd, a nuclear power plant that generated electricity from 1965 to 1991, by using it as a site again. * SO WHAT? * I guess that this makes sense because I would imagine that getting planning permission for nuclear power plants is a nightmare given that no-one wants to be anywhere near them. By using old sites, I would have thought that a lot of the hassle could be avoided, and SMRs could be the way forward given that they are cheaper to build and don’t take up as much space. Rolls-Royce reckons that at least 16 SMRs could be installed at current and former nuke power sites in the UK. This is all about Britain’s overall commitment to net-zero emissions by 2050 and sounds like it could be a solution.



Supply chain issues continue to bite…

I’ve been talking about supply chains a lot this week – and I’m sure I will continue to do so for some time to come! Mega-port reopening fails to clear supply chain backlog (Daily Telegraph, Louis Ashworth) shows that the recent reopening of Ningbo port near Shanghai, after one of its terminals shut down for two weeks due to a Covid outbreak, is not doing much to improve ongoing delays to global freight. Ningbo is the world’s third busiest port but some say that it could take weeks or months to clear the backlog.

Meanwhile, in the UK, Companies sound alarm on Christmas supply disruption (Financial Times, Daniel Thomas, Judith Evans, Alice Hancock and Peter Foster) shows that pressure continues to mount on the government to change its stance on how to deal with staff shortages (particularly of lorry drivers) as the CBI weighs in on giving workers in specific sectors temporary visas to ease supply chain problems. As the MD of Iceland put it, “We’ve already had one Christmas cancelled at the last minute, and I’d hate this one to be problematic as well”.

‘The anxiety is off the scale’: UK farm sector worried by labour shortages (The Guardian, Joanna Partridge and Richard Partington) highlights particular concerns in the agriculture sector, which absorbs a high percentage of

seasonal workers from the EU, particularly Romania and Bulgaria. The vice-president of the National Farmers’ Union (NFU) pointed out increasing incidences of rotting harvests due to labour shortages and limited opening of slaughterhouses resulting in the backing up of pigs. Two-thirds of Britain’s meat-processing industry employees are non-UK workers. * SO WHAT? * Ministers may be digging their heels in now about not caving in to demands from industry to allow temporary visas, but it seems to me that pressure continues to grow on a daily basis. If I were a betting man I would have thought that the government will do a U-turn on this within the next two months as this has all the ingredients of a disaster IMO. Potential voters will not be happy to have another 💩 Christmas IMO.

And at the risk of sounding somewhat repetitive, Lowest levels of car production for any July since 1956, UK industry reports (The Guardian, Jasper Jolly) cites the latest set of depressing figures from the Society of Motor Manufacturers and Traders which show a massive 37.6% fall in the number of vehicles made in July 2021 versus the number made in July 2020. * SO WHAT? * This is particularly gutting for the industry as there is clearly an underlying demand for new cars (if you look at what’s going on in the secondhand car market at the moment, you can see that there are buyers out there) and consumers do have money to spend at the moment. However, there’s not much anyone can do about semiconductor shortages that some analysts reckon will last into next year (although some of the chipmakers reckon we’ve already gone through the worst).



Salesforce rakes it in and Grafton benefits from DIY…

In a continuation of trends instigated by the pandemic last year, Salesforce sales jump on pandemic-fueled demand for cloud services (Wall Street Journal, Aaron Tilley) we see that CRM-supremo Salesforce reported a bumper quarter for sales that gave it enough confidence to raise its full-year outlook as companies continue to digitise their operations. The business software provider is a real lockdown winner having seen its share price rise by over 75% since the pandemic started and the spread of Delta variants is unlikely to dent the company’s momentum…

Closer to home, Grafton rides a pandemic boom in DIY (The Times, James Hurley) shows that the owner of (“where the trades go”) Selco continued to benefit from more DIY under lockdown in the first half as it reported adjusted operating profits coming in 20% above analyst expectations and a whopping 204% up on last year! Demand continues to look pretty solid, so momentum looks like it will continue…



Klarna announces losses while it expands, OnlyFans does a U-turn and Delta Air Lines “encourages” vaccination…

American advance pushes Klarna closer to flotation (The Times, Patrick Hosking) shows that the Buy Now Pay Later (BNPL) specialist is making massive inroads in the American market but that overseas expansion is taking a major toll on its finances as it announced losses that increased by 155%. * SO WHAT? * In terms of where we go from here, Klarna/Afterpay: invest now, profit later (Financial Times, Lex) highlights regulatory risk as a potential bump in the road for BNPL players but it is clear that the companies that are likely to suffer most are credit card companies like Visa and Mastercard as consumer behaviour continues to evolve. I would also add that an increasingly crowded space – that will soon include the likes of Apple Pay Later, a JV between Apple and Goldman Sachs – is going to make rapid growth more muted, but as long as momentum continues it will probably auger well for a Klarna IPO. If I were Klarna, I’d want to list sooner rather than later (especially before Apple enters the market) to take advantage of the current feelgood.

Following on from what I was saying yesterday, OnlyFans reverses contentious porn ban (Financial Times, Patricia Nilsson) shows that the platform has decided to continue to carry explicit content as it had “secured assurances necessary to support our diverse creator community and [had] suspended the planned October 1 policy change”. OnlyFans: dependent on sin for a financial win (Financial Times, Lex) concludes that OnlyFans needs porn more than it needs banks, and I would have to agree. * SO WHAT? * As I said in yesterday’s podcast, there is always going to be a demand for such content and without it OnlyFans would be a shadow of its former self. Although many creators will heave a sigh of relief, I would also imagine that they will have an eye to moving onto other platforms such as Twitter and Instagram as this scare will undoubtedly have made them more cautious. Given that porn is back on the table, the IPO is back on track!

We’ve heard a lot about varying behaviours of employers over vaccinations recently but Delta Air Lines to impose $200 monthly charge on unvaccinated employees, add testing requirements (Wall Street Journal, Alison Sider) sounds pretty clear. If employees don’t get vaccinated, they will have to pay a $200 monthly health insurance surcharge and potentially lose pay protection if they miss work due to catching the virus. Ouch. It’ll be interesting to see who else adopts this and whether lawyers can make money out of it 😜!



…in other news…

I thought that I’d leave you today with something that looks pretty good in We try a viral Chinese TikTok recipe for spicy ramen using Sprite soda in the broth (SoraNews24, Dale Role) and the rather concerning amusement park attraction in Japanese roller coaster keeps breaking riders’ bones, now under federal investigation (SoraNews24, Casey Baseel). Since December last year, there were four cases of people on this ride who suffered compression fractures in their neck and spine due to the G-forces they are subject to 😱!!! BTW, on the other thing, even if you don’t try that particular Sprite recipe I’d recommend those Korean instant noodles anyway – they get the 👍👍 from me!

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Some of today’s market, commodity & currency moves (as at 0756hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
7,140 (+0.19%)35,405.5 (+0.11%)4,496.19 (+0.22%)15,041.86 (+0.15%)15,844 (-0.39%)6,673 (+0.13%)27,725 (unch)3,502 (-1.09%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)